Baker Hughes to cut capex by 20 per cent as it takes $1.5bn earnings hit

Company to write down value of its oilfield business as clients rein in spending plans

Shell temporarily halted production on April 9 after a subsurface leak was discovered on Exxon’s Hoover Offshore Oil Pipeline System. EPA  

Oilfield services provider Baker Hughes said on Monday it will take a $1.5 billion (Dh5.5bn) charge to its first-quarter earnings, write down the value of its oilfield business and slash this year's capital spending by 20 per cent.

Oil and gas producers have cut 2020 spending by about 30 per cent, according to data compiled by Reuters, as oil prices have tumbled amid falling demand due to the coronavirus pandemic and a global oil glut.

Schlumberger and Halliburton, the two largest oilfield service providers, have cut spending for the year and taken aggressive cost-cutting measures, including workforce reductions, furloughs and executive pay cuts.

Baker Hughes said falling customer demand had led it to reduce its view of the long-term prospects for its oilfield services and equipment unit, resulting in a $15bn goodwill impairment charge.

Oil drilling and well completions in North America have ground to a halt since prices collapsed, with US drilling rigs dropping by 191 to 602 since early March, according to Baker Hughes.

The number of hydraulic fracturing fleets at work was forecast to fall below 200 last week, according to consultancy Primary Vision, down from around 420 last year.

"The uncertainty related to oil demand continues to have a significant impact on the investment and operating plans of our primary customers," Baker Hughes said.

Shares of Baker Hughes were down 1.6 per cent to $12.65 in early trading on Monday. They are down roughly 50 per cent on a year-to-date basis.

"Baker's price collapse also caused a triggering event that forced an impairment test of carrying values," James West, a senior managing director for Evercore ISI, wrote in an email.

Restructuring, impairment and other costs will reach $1.8bn this year, and $1.5bn will be recorded in the first quarter, Baker Hughes said.

It is scheduled to release first-quarter results on April 22.

Baker Hughes was taken over by conglomerate General Electric in mid-2017 and then divested last year. GE held a 36.7 per cent stake in Baker Hughes, according to securities filings.

Even before prices collapsed, energy companies were downgrading their outlooks.

Schlumberger said in autumn last year it planned to take a $12.7bn charge as shale drilling slowed while Chevron announced a $10bn charge related to offshore assets in the Gulf of Mexico and its Appalachia shale assets.

Baker Hughes said the restructuring charges are to adjust its operations for anticipated activity levels and market conditions, but did not provide any further details.